Cycurion, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Special Note Regarding Forward-Looking Statements," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2025 filed with the SEC on March 31, 2026 and elsewhere in this Quarterly Report on Form 10-Q, as applicable.

General and Business Overview

We were originally incorporated as KAE Holdings, Inc., under the laws of the State of Delaware in 2017, with the purpose of acquiring and holding operating entities in the cybersecurity industry. On July 14, 2020, we changed our corporate name from KAE Holdings, Inc. to Cyber Secure Solutions, Inc., and, on February 24, 2021, to Cycurion, Inc.

We have two first-tier wholly-owned subsidiaries, Cycurion Sub, Inc. (formerly Cycurion, Inc., until February 14, 2025) and Cycurion Crypto Inc., a Delaware corporation formed in July 2025, and four indirectly wholly-owned second-tier subsidiaries: (i) Axxum Technologies LLC ("Axxum"), a Virginia limited liability company formed in December 2006, (ii) Cloudburst Security LLC ("Cloudburst"), a Virginia limited liability company formed in January 2007, (iii) Secuvant LLC ("Secuvant"), a Utah limited liability company formed in 2014) and (iv) Cycurion Innovation, Inc., a Delaware corporation formed in September 2021 ("Cycurion Innovation"), in connection with our acquisition of assets from Sabres Security Ltd. ("Sabres"), a leading Israeli-based cybersecurity provider.

We deliver high-quality, cybersecurity solutions to federal government civilian, defense, and judiciary agencies in addition to commercial clients across a variety of industries. We, through our operating subsidiaries and strategic partnerships, have numerous prime and subcontracts with key government agencies. Our growth engine is driven by organic business solutions and strategic acquisitions of cyber/ infrastructure service providers.

Our Subsidiaries

Cycurion Sub, Inc.

We own our operating subsidiaries through Cycurion Sub., Inc., a Delaware corporation that, until the closing date of the de-SPAC, was known as "Cycurion, Inc." We continue to conduct our business through the three below-described entities, which are now indirectly wholly-owned second-tier subsidiaries by virtue of the recent closing of the de-SPAC transaction.

Cycurion Crypto Inc.

Our direct wholly-owned subsidiary, Cycurion Crypto, a Delaware corporation, was formed in July 2025 as part of our strategic initiative to position the Company within the expanding digital asset ecosystem and will manage a crypto treasury.

Axxum Technologies LLC

Organized in the Commonwealth of Virginia on December 29, 2006, Axxum is a cybersecurity provider with successful assignments within the multiple sub-agencies of the Department of Homeland Security. We acquired Axxum in November 2017. Following the acquisition, we continued Axxum's core operations of providing contractor services to its existing federal government customer base while leveraging our existing processes and tools to expand its commercial footprint.

Cloudburst Security LLC

Cloudburst is a cybersecurity provider with successful assignments within highly sensitive government agencies and other commercial organizations. We acquired Cloudburst in April 2019. Following the acquisition, we continued Cloudburst’s core operations of providing mission-critical and highly sensitive government agencies and other commercial organizations with high-quality, innovative cybersecurity services. Cloudburst focuses on providing tailored solutions that leverage the industry's best minds and technologies to predict, protect, detect, respond, and sustain our clients from the latest evolving cyber threats.

Cycurion Innovation, Inc.

Cycurion Innovation, Inc. was formed in connection with our acquisition of assets from Sabres, a leading Israeli-based cybersecurity provider. It operates our Cycurion Security Platform’s line of products allows our customers to improve their cyber posture with its MDP SaaS platform. This platform efficiently bundles and easily implements the external protection of a WAF and the internal protection of Bot Mitigation. Bot Mitigation is the reduction of risk to applications, Application Program Interfaces ("APIs"), and backend services from malicious bot traffic that fuels common automated attacks, such as DoS campaigns and vulnerability probing. The costs of single-layer security can be measured in terms of money, time, and risk, as well as the damage wrought by a data breach, which millions of businesses experience each year. Through this interaction of the WAF and Bot Mitigation, the MDP is able to reinforce these layers of security and generate new security layers in real time in response to emerging threats. This process is directed by our Cycurion Security Platform's proprietary, cloud-based AI algorithm. Crucially, the AI underpinning the MDP platform is constantly evolving to counter new threats. Through a crowdsourcing process, the cloud-based MDP learns from every threat to any protected application and uses that newly acquired knowledge to protect all MDP clients better.

Secuvant LLC

Secuvant is an independent IT security firm providing enterprise-grade cybersecurity services, risk management, and managed solutions to mid-market organizations. Founded in 2014, it specializes in managed security services, threat and vulnerability management and compliance using its Cyber7™ framework. We acquired Secuvant LLC on June 3, 2026.

Master Service Agreement with SLG Innovation, Inc.

The SLG team has an average of over 25 years of experience in the development, planning, implementation, and management of information systems. SLG's leadership team offers years of combined success in answering the needs of government agencies and healthcare organizations across the country.

The SLG team has worked nationally, as it has served over 25 Department of Health and Human Services agencies, all 50 state governments, and over 250 local governments. Since SLG's inception, it has primarily focused on customers in the middle of the country. The team of professionals has successfully delivered information technology, project management, and subject matter services to key health and human service projects, including, but not limited to, state Medicaid programs in Illinois, Indiana, Nebraska, and Tennessee, the Indiana Division of Aging, Illinois Early Intervention, the University of Illinois Division of Specialized Care for Children, the Multiple Myeloma Research Foundation, and many more.

We established a subcontractor — prime contractor relationship with SLG in the fall of 2019, where we serviced several government agencies and commercial customers, State of New Mexico, Cognizant, KPMG, and the University of Illinois in support of SLG. Axxum Technologies and SLG Innovation that relationship in 2020. A subcontractor offers its specialized services to a prime contractor. Unlike prime contractors, who focus on the managerial side of the government contract, subcontractors tend to dedicate their efforts to lending subject matter expertise and delivery of service to the project. Technically strong subcontractors, along with a strong subcontractor plan are essential to boost the success of a project.

As a result of the strong technical skills and experience of the cyber teams at Cycurion and its subsidiaries, SLG Innovation entered into a Master Services Agreement ("MSA") with Axxum Technologies to provide services to SLG customers. The MSA is task order driven and the number of task orders is modified periodically depending on actual customer requirements for IT and cybersecurity services. Over the last three years, Axxum Technologies has assisted SLG Innovation in growing its revenue and customer base. As a result, SLG Innovation now represents a majority of Cycurion revenues.

RCR Acquisition Agreement

RCR Technology Corporation ("RCR") performs certain services for SLG in its role as an SLG subcontractor and, in that context, became a creditor of SLG. In connection with the transactions contemplated by the term sheet with SLG (the "SLG Term Sheet"), on April 25, 2023, Cycurion Sub and RCR also entered into a term sheet (the "RCR Term Sheet") for a distinct, but related transaction. The RCR Term Sheet contemplates a transaction, pursuant to which RCR will sell to Cycurion all of the accounts receivable of SLG in favor of RCR (but for those accounts that are less than 90 days old as of the date of consummation of the contemplated transaction). The consummation of the transactions contemplated by the RCR Term Sheet is contingent upon the consummation of the transactions contemplated by the SLG Term Sheet. We consummated the transactions contemplated by the RCR Term Sheet on September 25, 2025. Cycurion issued 248,006 shares of common stock to RCR as a result of the consummation of the transaction contemplated by the RCR Term Sheet pursuant to the Securities Purchase Agreement, dated September 25, 2025.

Acquisition of Technology

On September 30, 2021, we acquired certain technology assets of Sabres, a leading Israeli-based cybersecurity provider. As part of the asset purchase agreement, we acquired Multi-Dimensional Protection ("MDP"), WAF and Bot Mitigation SaaS platforms and their associated intellectual property.

Our Cycurion Security Platform's (formerly Sabres') line of products allows our customers to improve their cyber posture with its MDP SaaS platform. This platform efficiently bundles and easily implements the external protection of a WAF and the internal protection of Bot Mitigation. Bot Mitigation is the reduction of risk to applications, APIs, and backend services from malicious bot traffic that fuels common automated attacks, such as DoS campaigns and vulnerability probing. The costs of single-layer security can be measured in terms of money, time, and risk, as well as the damage wrought by a data breach, which millions of businesses experience each year. Through this interaction of the WAF and Bot Mitigation, the MDP is able to reinforce these layers of security and generate new security layers in real time in response to emerging threats. This process is directed by our Cycurion Security Platform's (formerly Sabres') proprietary, cloud-based AI algorithm. We do not have AI processing in the production version of the software. That version is in the testing and evaluation phase. Crucially, the AI underpinning the MDP platform is constantly evolving to counter new threats. Through a crowdsourcing process, the cloud-based MDP learns from every threat to any protected application and uses that newly acquired knowledge to protect all MDP clients better.

Our Cycurion Security Platform's (formerly Sabres') line of products provides solutions for substantially all web application security needs. These products provide solutions, whether a client is in need of a web application firewall to comply with regulations and ensure it has a first line of defense against the hazards that the internet can present or is in need of enterprise-level products that empower SOC teams and security management. Our Cycurion Security Platform's constantly survey a client's data to detect security issues in need of attention, send automatic updates, and provide the client with a complete database of rules and threats.

We have integrated the technology assets that we acquired from Sabres (which now constitutes our Cycurion Security Platform) into our Managed Security Services Practice. We believe that the platform will enhance our service offerings and assist with the expansion of our commercial business. Our dedicated support team will manage the Sabres platform, provide real time reporting, response to security incidents, and will manage all data privacy needs from a single security information and event management SaaS platform dashboard.

Financial Overview

A number of factors have contributed to the second quarter 2026 results of operations, the most significant of which are described below. More details on these changes are presented below within our "Results of Operations" section.

• The execution of cost saving efforts have improved our gross margin.
• The completion of the business acquisition of Secuvant.

Results of Operations

Table MD&A 1: Consolidated Results of Operations

Revenue

Revenues for the three months ended June 30, 2026 decreased $0.1 million or 3.4%, from $3.9 million for the three months ended June 30, 2025 compared to $3.8 million for the three months ended June 30, 2026. For the six months ended June 30, 2026, the company recognized $7.0 million, compared to $7.8 million for the same period in 2025. The overall decreases in revenue for both the three month and six month periods are primarily the result of a delay in a large contract start.

Cost of revenues

The cost of revenue for the three months ended June 30, 2026, was $2.7 million, compared to $3.7 million for the comparable period in 2025. The cost of revenue for the six months ended June 30, 2026 was $5.2 million, compared to $6.8 million for the six months ended June 30, 2025. Management has worked hard over the past year to improve margins, has translated into gross margins of 29.1% and 25.4% for the three and six months ended June 30, 2026, compared to 6.1% and 11.8% for the three and six months ended June 30, 2025.

Selling, general and administrative expenses

Our selling, general and administrative expenses increased significantly for the three and six months ended June 30, 2026 compared to the same period in 2025 due to the additional expenses associated with being a publicly traded company, full consolidation of SLG selling, general and administrative expenses and the addition of key individuals for the company's growth strategy.

Stock compensation expenses

Stock compensation expense was $0.3 million and $0.7 million for the three and six months ended June 30, 2026, respectively, compared to $1.0 million for both the three and six months ended June 30, 2025. The decrease is the result of timing of stock compensation grants.

Business combination expenses

Business combination expenses recognized during the three and six months ended June 30, 2025 are a result of the business combination with Western.

Interest income

Interest income was $3,506 and $17,742 for the three and six months ended June 30, 2026, respectively, as the company was able to invest cash in money market accounts. No interest earning assets existed in the six months ended June 30, 2025.

Interest expense

Interest expense for the three and six months ended June 30, 2026 was $0.2 million and $0.4 million, respectively. Compared to $0.6 million and $0.8 million for the three and six months ended June 30, 2025. The decrease in interest expense in 2026, compared to 2025, is the result of reducing debt levels through cash payments and conversions to equity. For further information refer to debt footnotes.

Loss on debt settlement, net

The company recognized a $1.9 million loss on debt settlement, net for both the three and six months ended June 30, 2026, compared to a loss of $0.9 million and $0.8 million for the three and six months ended June 30, 2025, respectively. These losses are the results of debt conversions as the company continues to strengthen the balance sheet through liability management.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash from operations, borrowings under our debt financing arrangements and equity raises through our equity line. As of June 30, 2026, we had $1.9 million in cash and cash equivalents. As of June 30, 2026, there was substantial doubt regarding the Company's ability to continue as a going concern, as the Company had a net working capital deficit and an accumulated deficit resulting from substantial losses incurred during the six months ended June 30, 2026 and from prior periods. The Company's ability to continue as a going concern depends upon its ability to market and sell its products to generate positive operating cash flows. As of June 30, 2026, the Company had an accumulated deficit of $32.8 million and a working capital deficit of $13.6 million. In addition, the Company had a net cash outflow of $6.2 million from operating activities during the six months ended June 30, 2026. These circumstances continued to give rise to substantial doubt as to whether the Company will be able to continue as a going concern and did not alleviate the doubt outstanding from 2025.

Management's plan is to continue improving operations to generate positive cash flows and register shares of its common stock in order to undertake a public offering to raise additional capital. Management believes that the valuation and liquidity brought by a public offering of its securities will allow holders of convertibles notes, and convertible preferred stockholders the mechanism to convert their securities into common stock that will reduce the Company's overall leverage and debt service requirement. If the Company is not able to continue generating positive operating cash flows, and raise additional capital, there is the risk that the Company may become insolvent.

Cash Flow

Table MD&A 2: Net Changes in Cash and Cash Equivalents

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Net Cash Used In Operating Activities

For the six months ended June 30, 2026, net cash used by operating activities was $6.2 million, compared to $6.3 million for the six months ended June 30, 2025. The decrease in cash used in operating activities is the result numerous factors since the first six months 2025 had many business combinations expenses. The company has expanded the corporate level team for the 2026 period compared to first half of 2025, but has been able to partially offset some of those cash outflows by focusing on cost saving initiatives through the organization.

Net Cash Provided By Investing Activities

For the six months ended June 30, 2026, net cash provided by investing activities was approximately $16,014, compared to $1.7 million net cash provided by investing activities for the six months ended June 30, 2025. The cash inflow in 2025 was a result of the Trust Account in connection with redemption and cash released from the Trust Account to the Company, while the small inflow in 2026 was the result of $0.2 million being acquired in the Secuvant transaction, as not all cash payments have been made yet, partially offset by the software development cash outflows. The remaining cash disbursements for the Secuvant transaction are approximately $0.5 million, which is expected to be fully by December 31, 2026.

Net Cash Provided by Financing Activities

For the six months ended June 30, 2026, net cash provided by financing activities was $2.8 million, which was the result of $3.3 million of capital raises, partially offset by $0.5 million of repayments on the revolving line of credit. For the six months ended June 30, 2025, net cash provided by financing activities was $5.6 million, driven by $3.7 million in proceeds from exercise of warrants, $2.4 million in proceeds from issuance of convertible notes and $0.5 million in proceeds from issuance of notes payable. These inflows were partially offset by cash outflow of $1.0 million related to the redemption of common stock subject to redemption. Other inflows and outflows are the result of various proceeds and repayments on notes and bank borrowings.

Going Concern

We have incurred operating losses since inception through the period ended June 30, 2026, having had negative cash flow from operations. As of June 30, 2026, we had an accumulated deficit of approximately $32.8 million, as compared to our accumulated deficit of approximately $26.9 million as of December 31, 2025. The increase of our accumulated deficit was a result of our net losses for the six months ended June 30, 2026.

Furthermore, we expect continued, significant operating losses for the next few years. We also utilized cash in operations of approximately $6.2 million for the six months ended June 30, 2026. As of June 30, 2026, we had unrestricted cash of approximately $1.9 million, a decrease of $3.4 million from approximately $5.3 million as of December 31, 2025. As of June 30, 2026, our total assets increased to approximately $38.4 million from approximately $33.5 million as of December 31, 2025, primarily due to an increase in goodwill and intangible assets as result of the Secuvant acquisition, partially offset by a decrease in cash. Based on our current capital resources as of June 30, 2026, including our unrestricted cash and accounts receivable, net of $5.6 million, we anticipate the need to raise more capital to be able to continue our operations for a minimum of 12 months as of the date of this report. Nevertheless, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient, consistent cash flow from operations to meet the expected growth in our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.

Our unaudited consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow.

There is no assurance that we will ever be consistently profitable or, notwithstanding our recent financing activities, that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Off-balance sheet arrangements

We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the SEC rules and regulations.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates, judgments, and assumptions that affect the amounts reported. Actual results could differ from those estimates. The 2025 Form 10-K, as filed with the SEC on March 31, 2026, includes a summary of critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues, or expenses during the six months ended June 30, 2026.

As a "smaller reporting company," as that term is defined in Rule 229.10(f)(1), we are not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer (our Chairman and Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on form 10-Q. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

We may not realize all of the anticipated benefits of any of our pending acquisitions.

There is a risk that some or all of the expected benefits of any pending transactions and acquisitions may fail to materialize or may not occur within the time periods anticipated. The realization of such benefits may be affected by a number of factors, many of which are beyond the control of the Company, including, but not limited to, the strength or weakness of the economy and competitive factors in the areas where the Company and other parties in the pending acquisitions or transactions do business, the effects of competition in the markets in which the Company or other parties operate, and the impact of changes in the laws and regulations regulating or affecting domestic or foreign operations. The past financial performance of each of the Company and any potential acquisition may not be indicative of their future financial performance. Realization of the anticipated benefits in pending acquisitions and transactions will depend, in part, on the combined company's ability to successfully integrate the Company's and any acquired businesses. The Company will be required to devote significant management attention and resources to integrating any acquired business's practices. The diversion of management's attention and any delays or difficulties encountered in connection with the pending acquisitions and the coordination of operations could have an adverse effect on the business, financial results, financial condition or the share price of the Company. The coordination process may also result in additional and unforeseen expenses.

Failure to realize all anticipated benefits of the pending transactions may impact the financial performance of the Company, the price of the Company's common Stock and the ability of the Company to pay dividends on its common stock.

If we fail to comply with the continued minimum closing bid requirements of the Nasdaq Global Market or other requirements for continued listing, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

Our common stock is listed for trading on the Nasdaq Global Market. We must satisfy Nasdaq continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 consecutive business days. If a company's common stock trades for 30 consecutive business days below the $1.00 minimum closing bid price requirement, Nasdaq will send a deficiency notice to it, advising that it has been afforded a "compliance period" of 180 calendar days to regain compliance with the applicable requirements. Thereafter, if such a company does not regain compliance with the bid price requirement, a second 180-day compliance period may be available.

On July 22, 2026, the Company announced it requested a hearing before the Panel to appeal the delisting determination the Company received on July 10, 2026, relating to the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(1). The hearing has been scheduled for August 20, 2026. If the Panel decides to delist our stock the liquidity of our shares of common stock would be adversely impacted, potentially resulting in even lower bid prices for our shares of common stock, and make it more difficult for us to obtain financing through the sale of our shares of common stock.